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1/ So interestingly, a third of respondents don’t like real estate as a space. Though from a business model perspective I agree with the conclusion that bldg materials (BM) is the best way to play this because —>
2/ BM has renovation demand and ‘trading-up’ demand which takes away some of the cyclicality, has the ability to build distribution which if done right adds to the “moat” and lends itself to the optionality of being asset light
3/ In contrast, Devs and financiers are by and large capital hungry. When you are capital hungry you open yourself to two risks. That of regularly raising capital and the price at which you get it. If caught in a bad cycle you could wipe out years of return
4/ Even if some devs are asset light, evaluating / valuing project based or a EPC businesses is tough. You can’t value earnings and have to rely more on trends. Then you can never know how much of a dev is on books / off books.
5/ HFCs I think are generally bad models because they borrow from banks and compete with them. So again mainly a bull market and low interest rate play. The search for yield makes them go sub-prime or lend to builders. Even HDFC has a third of its book with builders
6/ So you end up paying a retail consumer multiple on what’s a part wholesale book. It makes your implied real retail multiple super expensive. Unless you come in below book you are depending on the generosity of a bull market for returns
7/ You can choose to ignore real estate altogether though I believe that if you get good BM brands at a reasonable price is a better way to play RE. There is a good range of brands. @unseenvalue recco’ed #AsianPaints #Pidilite. There are some down the order as well
8/ Not everything with a “name” is a brand though. Understanding what makes one is an art in itself. I’ve heard diff versions from diff folks. So also is what is ‘good’ and ‘reasonable’ valuation :) Cheers! ... Thoughts?
